Dan Passarelli, CEO - Market Taker Mentoring

Risk management is one of the most important things for all traders. There are certain tools that you can use in order to help you make that risk management easier and easier to understand. What we're going to talk about in this video is what Think or Swim calls price slices. I want to show you how it works.

Let's imagine that in this stock right here, we're looking at say, a bull call spread. Maybe buy these calls and sell these calls. I always like to model them in the analyze tab. Come over to Risk Profile. It draws out the PNL diagram. We can talk about that in different videos, but I want to skip down here to price slices. Now with Apple stock at 130.65 and as you can see, the price just changes dynamically real time. As long as we're unlocked, it gives me my Delta, my Gamma, Theta, Vega PNL from the open and on the day. We're just modeling this trade at this point. We didn't put it on just yet. We can do this with trades we have on as well. But I want to add some slices here.

So I'm going to add one and I'm going to add a second one. Right now these are all identical. We can change this from a dollar amount and we can offset it by a dollar or two or whatever or we can change this to a percentage standard deviation or whatever. I like to change it to a percentage difference. And I like to start with down 10%. Then I also like to look at it up 10%. So what this does is this says, hey, look, here's the current at the money price for Apple where the stock is trading. But here's the price if it's down 10%. Here's the price if it's up 10%. And here's how our Delta changes. Here's how our Gamma changes. Look, it actually turns negative at some point, right? Here's how our Theta changes, our Vega. Here's what happens with our PNL from the opening of the position or on the day.

So this becomes an extremely useful tool for you because, look, you can see what happens at certain stock prices and really come to understand deeply what your potential profit is or what your potential losses. And that's one of the keys to being successful at trading. Hope that helps.